Wednesday, Apr 02 2014
• 10 a.m. (ET)

New Questions About GM, Government Regulators And Consumer Safety

GM recalls related to faulty ignition switches and other defects now exceed 6.3 million vehicles. CEO Mary Barra and the top auto regulator answer questions on Capitol Hill about GM, government regulators and consumer safety.

Sean McAlinden
chief economist and executive vice president for research, The Center for Automotive Research.

Joan Claybrook
president emeritas, Public Citizen.

Transcript

10:06:53

MS. DIANE REHMThanks for joining us. I'm Diane Rehm. GM executive Mary Barra and top U.S. auto safety regulator David Friedman are on Capitol Hill for a second day of questions. Today in the Senate, yesterday the House. Congress wants to know who knew what and when about a faulty ignition system linked with 13 deaths.

10:07:19

MS. DIANE REHMJoining me to talk about the government's investigation and consumers' safety, Allan Kam, former senior enforcement attorney with the National Highway Traffic Safety Administration. Joining us by phone from Santa Barbara, Joe White of the Wall Street Journal.

10:07:38

MS. DIANE REHMJoining us a bit later in the hour, Joan Claybrook, president emeritus of Public Citizen. Throughout the hour we'll take your calls, 800-433-8850. Send us your email to drshow@wamu.org. Follow us on Facebook or Twitter. Allan Kam, Joe White, thanks for joining us.

10:08:03

MR. ALLAN KAMThank you.

10:08:04

MR. JOE WHITEGood morning.

10:08:05

REHMGood to have you both. Joe White, give me a sense of what you believe we heard yesterday from the hearing. Sum it up for us.

10:08:19

WHITEWell, what we heard was this, first of all, Mary Barra was very careful to do a couple of things. One, to try to demonstrate to the lawmakers and to victims of crashes involving these recalled cars who were in the room that she is not a sort of cartoon-arrogant executive from GM's past. I mean, she was -- she apologized. She acknowledged the loss and tragedy here. And she over and over again said, look, there's a new GM.

10:08:49

WHITEOn the other hand, she was hit with the kind of memo that automakers just dread being made public, which is, you know, a kind of a very cold, engineering, financial cost-benefit analysis of a fix, that had they made it in 2005, it would have probably spared a lot of people pain and trouble. There was a memo that the House investigators found that said that -- from within GM -- that basically had engineers deliberating whether they should spend 90 cents a car to fix this ignition switch back in 2005.

10:09:18

WHITEAnd the fix was rejected because it only delivered 10 or 15 cents a car in warranty savings. I mean, this is obviously a big problem. Ms. Barra called this unacceptable. But I will say this, she, many times, deflected questions about who exactly knew what when -- the kinds of questions you referenced -- from lawmakers by saying, "We have an investigation ongoing," which they do, by an attorney, Anton Valukas, who was probably best known to people as the guy who invested the Lehman collapse.

10:09:46

WHITEAnd so she was able to sort of defer those answers, probably difficult answers, by saying it's all under investigation. So that was what she had to say. I think -- and we can come to this later, of course, but from the National Highway Traffic Safety Administration side, the acting administer, David Friedman, was really under pressure to explain how his agency could twice have walked up to a decision to investigate and possibly order recalls on these cars in 2007 and 2010, and walk away from it.

10:10:17

WHITEAnd it really looks like just a failure to see a pattern. Mr. Friedman essentially blamed GM for not giving the agency the information that they needed to put the picture together.

10:10:29

REHMAnd what can we expect today?

10:10:33

WHITEMore of the same from those two, Mary Barra and David Friedman. The Senate has called the inspector general of the Transportation Department. And he, Calvin Scovel, is going to say some interesting things, according to testimony that's just been put out this morning. One, he's going to review the extent to which, indeed, in this time period, sort of pre-2011, NTSA really did have faults and gaps in its systems for analyzing consumer complaint data and other data, accident data and other data that it gets.

10:11:11

WHITENow, his message is going to be, since 2011 NTSA has done a lot of work to fix these problems. But he's going to call for tougher penalties for automakers who fail to be forthcoming. And I think you're going to hear a lot about that in the next few days and weeks.

10:11:28

REHMJoe White, he's global auto editor for The Wall Street Journal. Turning to you, Allan Kam, you are the former senior enforcement attorney at NTSA. I wonder if you would outline for us, briefly, what exactly this problem is that GM was dealing with and that apparently or allegedly has caused the death of at least 13 people.

10:12:06

KAMWell, the problem that GM has acknowledged concerns the ignition switch. There isn't sufficient torque on the switch, so that if you go over a pothole or a bump or the driver's knee hits the keychain it can move the keys in the ignition such that the vehicle is put in the accessory position, rather than the power position. The driver can lose power steering, power brakes, the airbag gets shut off. Of course if the driver is encountering a turn or a curve at a moderate or high speed, that can be enormously dangerous. And of course if the airbag doesn't work, that's pretty bad also.

10:12:48

REHMNow, one engineer, Mark Hood, found that by replacing that ignition switch with a 30 cent piece of plastic, that that whole problem could be done away with; isn't that correct?

10:13:13

KAMThe fix would be pretty inexpensive. Yesterday at the hearing Congresswoman Diana DeGette of Colorado mentioned the figure of 57 cents a vehicle. Either way you're talking about pretty small money. And the documents that the committee was referring to indicate that GM, in 2004 and 2005, considered it a problem that the vehicle can be keyed off with the driver's knee while driving.

10:13:43

KAMAnd they declined to make a change at that point, stating that the tooling cost and piecing price were too high. So clearly they were putting profits over safety.

10:13:53

REHMSo this particular part was replaced later on, but supposedly none of the higher-ups at GM knew about this; is that correct?

10:14:08

KAMWell, so they claim. It kind of reminds me of the movie "Casablanca," you know, the line that the French police captain said, "I'm shocked, shocked there's gambling going on here." I find it pretty hard to believe that nobody at GM in a higher position knew about this.

10:14:21

REHMJoe White?

10:14:24

WHITEI think, yes, I think you have to define higher position. The memo that I refer to as sort of the, you know, we're going to have to spend 90 cents and only get 10 or 15 cents back in savings, one of the names on that memo is Lori Queen, who was at the time what is known in GM as the vehicle line executive. Basically, the manager or the executive in charge of a line of vehicles of which the Chevy Cobalt and the Saturn Ion and several other vehicles were part.

10:14:52

WHITESo she was clearly aware. It's not at all clear that anyone at the level of the CEO was aware of this sort of thing because, keep in mind, any one car has thousands of parts. GM, at the time, had, I think, seven or eight brands going with dozens of different cars. And these sorts of decisions are hashed out every day. And one other thing that I think is important to note, and I don't say this to excuse GM because I don't think GM is trying to excuse itself on this.

10:15:18

WHITEBut what's interesting and what emerges from documents about this is that at the time in '04 and '05, it really seems that GM and its engineers considered this primarily a customer relations marketing problem. That this defect was annoying, but they didn't really connect it until later. And they did connect it later to the airbag and the fundamental safety problem. They talked about, well, if this happens, you can just steer the car to the side of the road.

10:15:46

WHITEUnfortunately, what developed in the real world was that you had this car being driven by inexperienced, often very young drivers. And when these failures happened, it clearly, in at least 13 cases and probably more, you had a tragic outcome. And so there's just a failure within GM, apparently -- and the documents suggest this, too -- to really see through to the end of what this -- what this problem really could be about and the gravity of it.

10:16:15

REHMJoe White, tell me about Raymond DiGiorgio who was the head switch engineer at the Cobalt, and the switch and the replacement that was made. He said he saw differences, but could not explain why the part had been changed without a corresponding change in the identification number. Yet there are documents showing he signed off on this.

10:16:51

WHITEWell, right. And there is one of just many unresolved conflicts in the testimony that I think members of Congress are going to demand that GM produce a clear explanation of what went on and get to the bottom of it. And Mary Barra sort of deferred questions about that to this investigation.

10:17:10

WHITEIt seems pretty clear that Ms. Barra said as much yesterday, that this business of doing a pretty serious part change or design change on this part without documenting it was not the way things should have been done. And Mr. DiGiorgio, to my knowledge, has not spoken publicly about his role in this. He's given depositions, as you say, where he denied…

10:17:34

REHMRight.

10:17:35

WHITE…he said he didn't know about the change. Yeah, it doesn't add up. And I think we're going to find that this will be very problematic for GM as things go forward.

10:17:46

REHMAllan Kam, why wouldn't NTSA have caught some of this and said, wait a minute, something's wrong?

10:17:54

KAMWell, the agency was looking at reports of airbag non-deployment. It had a few special crash investigations where the victims were driving the vehicles that have more recently been recalled. But the agency was looking at it in the context of airbags. And airbags are designed to deploy in certain circumstances and not deploy in other circumstances. The agency wasn't focused on the ignition switch defect. GM knew about that, but didn't tell NTSA about it.

10:18:25

REHMAllan Kam, he's director of the Highway Traffic Safety Associates, former senior enforcement officer at NTSA at the U.S. Department of Transportation. We'll take a short break here. When we come back, you'll hear from Joan Claybrook.

10:20:00

REHMAnd welcome back. We're talking about GM testimony on the Hill today before the Senate regarding ignition switches that proved faulty and indeed resulted in the deaths of 13 people. Allan Kam, I'd be interested in your reactions to Mary Barra's testimony yesterday.

10:20:29

KAMWell, she sounded contrite. She apologized to the victims but would not accept any legal responsibility. She constantly responded to questions about what GM knew and when it knew it by saying, I don't know, it's under investigation. Our investigator Mr. Anton Valukas is going to look into it and I look forward to his report. It kind of reminded me of Sergeant Schultz on Hogan's Heroes saying, I know nothing.

10:20:57

KAMNow then she was asked, well will you provide us with Mr. Valukas' report or his findings, and she was noncommittal there. She said, well, she'll share what's appropriate. So it's -- I really wonder how much she's actually going to disclose. She was asked if the -- she was concerned that the General Motors switches that were supplied by Delphi, its supplier, were out of specification. They didn't even meet GM's minimum specifications. And she gave a kind of disjointed answer saying...

10:21:28

REHMBut then how could they have been accepted if they didn't even meet GM's criteria?

10:21:34

KAMThat was the issue that the congressmen focused in on. And she gave some elaborate explanation about something could be out of specification and yet still be safe. And Joe Barton, the chairman emeritus of the committee, Congressman Barton said, what you said is gobbledygook.

10:21:53

REHMJoe White, you wanted to add.

10:21:55

WHITEWell, yeah, I think she probably got lost in the trees a little bit trying to explain to Joe Barton, who by the way, you know, in a former life was an engineer, what to say and made that point. The difference between the sort of, you know, accepting a part that is safety critical and doesn't meet the performance requirements, which this ignition switch did not. And it is a complete mystery why it would've gone ahead with it, except that they didn't want to delay this car and they didn't want to spend the money.

10:22:26

WHITEAnd then try to explain that, well, sometimes we'll take a piece of steel that's not quite up to our, you know, specifications but meets all the requirements, you know, for being durable and not rusting and all of that. It was not a good moment for her. Maybe -- I'm not sure if it wasn't her worst moment during that hearing.

10:22:44

WHITEI do want to add one thing that was interesting -- very interesting yesterday, and it goes to the question of how GM is going to deal with folks who've been harmed and lost loved ones and lost family members in these tragedies. GM has hired Kenneth Feinberg who was the lawyer who negotiated the compensation for victims of the 9/11 attacks, later went on to set up a fund to compensate people were harmed by the BP oil spill.

10:23:11

WHITEIt is not 100 percent clear what GM intends to do, and we can talk about the controversy over how GM's bankruptcy and the bailout have shielded them from a lot of the liability here. But evidently it does seem like GM is trying to think of a -- figure out a way to address demands that they do something for people they've -- or the products have harmed. And they seem to -- and they've hired a, you know, pretty high-priced and talented lawyer to work -- to help them work through this.

10:23:42

REHMAll right. And joining us now from a studio at WDET in Detroit, Joan Claybrook. She's president emeritus of Public Citizen. Joan, thanks for joining us.

10:23:58

MS. JOAN CLAYBROOKOf course.

10:24:00

REHMHow much confidence should all of us have in our auto safety regulatory process?

10:24:11

CLAYBROOKWell, I think it needs to be reformed. And Fred Upton who's the chair of this commerce committee that had the hearing yesterday was involved in passing a law in 2000 that did make some improvements. But more needs to be done. And I think that we need to have more information given on an automatic basis by the companies to the National Highway Traffic Safety Administration. We need to have more transparency at the Department of Transportation because this agency has become very secretive. And so no one can really oversee what they're doing or get information easily.

10:24:45

CLAYBROOKAnd I think we need increases in penalties, both the dollar amount -- it's a maximum of $35 million now, which is nothing to these big companies, it should be unlimited -- and criminal penalties for knowing and willful failure to do a recall where they know that there's a safety hazard and also the authority to challenge an inaction by the Department of Transportation on a safety defect. So those are the major things.

10:25:10

REHMAnd what about the relationship between NHTSA and the auto industry itself?

10:25:18

CLAYBROOKWell, NHTSA has a enormous amount of authority. They can send subpoenas to get information. They can do research, testing, evaluation. The auto companies are generally responsive to the agency but no company likes regulation. And so in this case I think that they knew a lot more than they told the agency. On the other hand, the agency has the power to get it. And they just have to use that power rather than wait and hope that the auto companies are going to come tell them something.

10:25:52

CLAYBROOKSo I think that it could be vastly improved. It takes a cop on the beat. It's not a popular job to be a regulator. You have to think not about popularity but about doing your job and making sure you get to the bottom of problems.

10:26:05

REHMAnd aren't you also thinking about your future job perhaps looking actually for a job within the auto industry itself if you were part of NHTSA?

10:26:20

CLAYBROOKWell, I think some of the engineers might but I don't think there's a lot of revolving door, if you would, at that level. I think that it's more at the general council administrator, deputy administrator, you know, the chiefs at the top. And many of them have either gone to work for consulting firms or law firms or for the industry itself in the last two decades. And that, I think, has been very harmful to the agency. And, yes, if you're thinking of doing that, if that's going to be your next job, you're not going to beat up on the auto industry when they don't behave.

10:26:55

REHMAllan Kam.

10:26:56

KAMIt's interesting that those positions that Joan Claybrook just identified are all political appointments. They're not career positions. That people who serve maybe two or three years and then leave, they have to leave with a turnover of administration. They don't have civil service protections to go on to the next administration. And so they're short termers. And Joan is absolutely right that some of those leaders then have gone on to work directly or indirectly for the industry either as an employee or a consultant or an expert witness or in some capacity at a foundation or group that the industry is funding.

10:27:29

REHMSo what does that mean in reality, Allan?

10:27:34

KAMWell, you can't help but wonder if someone in a political leadership position at the agency over the years would be thinking if my predecessors have done very well in post agency employment or compensation by the industry, and maybe I shouldn't be so harsh on the industry and they'll take care of me after I leave. That does not apply to Joan Claybrook. She was a very firm administrator.

10:27:57

REHMAbsolutely. Joe White, do you want to comment on the relationship between the industry and NHTSA?

10:28:06

WHITEWell, yeah, I think -- I mean, in one of the dimensions that I'd add, and Joan Claybrook alluded to this with her reference to the cop on the beat, I mean, one of the things -- I mean, my take as of now, based on the evidence we have, is that this may be one of those situations where, you know, the cop was just looking in the wrong doorways and looking in the wrong alleys here and didn't have the data and the information required to confront GM and say, look, you know, you guys aren't telling me what's really going on here.

10:28:39

WHITEAnd I think that to a great extent NHTSA relies on the goodwill of the industry to come forward. And this episode and the Toyota episode several years ago, I think has shown us that that's maybe not enough and that NHTSA needs to be able -- using technology, using data. And I think you're going to have -- there's going to be a robust discussion about issues such as criminal penalties, giving that it's a bigger stick, when -- to bring companies in line when -- for whatever reason they don't do what everyone would consider to be the right thing.

10:29:13

REHMJoan Claybrook.

10:29:14

CLAYBROOKWell, Diane, I completely disagree that NHTSA -- with Joe that NHTSA did not have the capacity to make this -- to find this problem because this is a design defect. This is not some obscure manufacturing defect that was only in a small number of vehicles and you had to go looking and searching for it. This is a design defect which means it was in every single one of the cars that they were looking at.

10:29:38

CLAYBROOKSecondly, this whole thing about they have to find a trend. They do not need to have a trend. All they need to know is that there is a failure of a critical part or system that it could cause death or injury. It has and it will in the future. And that's enough to say, per say that is a safety defect. And the agency has been bogged down in this bureaucratic concept that's new. I mean, it wasn't there when I was there, which is that they have to find tons of data and, you know, tons of consumer complaints and tons of deaths and injuries. And that is totally contradictory to the purpose of this agency, which is preventative.

10:30:18

CLAYBROOKSo the agency is supposed to be Johnny on the spot, finding these things and looking at them from the point of view of, is there enough information here? This was only -- the question here was, is there enough information to open an investigation? It wasn't, is there enough information to find a defect. They never opened an investigation. And when some of the lower-level engineers who do the day-to-day work recommended that they open an investigation, they were overruled because there wasn't a trend pattern. There is no need for a trend pattern and, in fact, it's contradictory to the purpose of the agency.

10:30:51

REHMAllan.

10:30:52

KAMNHTSA, unfortunately, has very limited resources. And its office of defects investigation is only about 20 individuals who actually conduct the defect investigations, non-supervisors. And so when you decide whether or not to open an investigation you have to say, what resources to we have? It's a zero sum game in terms of our resources. Time spent on one investigation is time you can't spend on another because you just don't have enough person power to do it.

10:31:20

REHMBut if there are deaths involved shouldn’t that zero sum be aiming toward finding out why those deaths are coming?

10:31:33

KAMOptimally yes. I'm just trying to make the point that the agency could use a lot more staff. And inevitably there's a resource allocation consideration when deciding whether or not to open up a defect investigation.

10:31:45

WHITEYeah, you know, I just….

10:31:45

CLAYBROOKWell, I don't want to have this left unfinished. The agency has only $10 million -- $10 million for the entire defect operation. It is totally ludicrous. And after the Ford Explorer they got some additional money for one year and then it disappeared. So -- and the whole agency only gets $134 million, which is pittance for the entire United States for the entire auto safety agency. And for years we've been complaining about this. After Toyota we tried to get a big increase and the congress didn't do it.

10:32:19

CLAYBROOKThis is one of the major things that I think that Fred Upton who is the chair of the committee from Michigan, but he's been pretty tough on this, he needs to fix this. He needs to get more money into that agency and get more power into that agency so it can do its job.

10:32:32

REHMJoan Claybrook, president emeritus of Public Citizen and you're listening to "The Diane Rehm Show." Joe, I know you wanted to jump in there.

10:32:43

WHITEYeah, I was champing at the bit. First of all, I was -- Joan Claybrook made the point that I wanted to make which is about the budget. And I think that what will be interesting now is to see whether congress -- and you've got sort of -- interesting thing here, you've got bipartisan outrage about this on these committees. You don't see that a lot these days. So the question now is whether congress will do what it did not do after the Toyota scandal in 2010, the Toyota sudden acceleration scandal.

10:33:13

WHITEWill it enact a law -- laws giving NHTSA more power to -- more criminal penalties or other powers -- will it give it more resources? And will it tell the agency that their approach to these sorts of things is not right and that they need to sort of get away from this. We have to find a trend in order to do something, an approach that they did take in this case and have taken in a number of other cases. I mean, those are all questions that are going to be answered as we go forward.

10:33:44

REHMAnd...

10:33:45

CLAYBROOKBut, you know, that all depends on Fred Upton because if Fred Upton as chairman of this committee from the State of Michigan says, we need to fix this, as he did participate in the tread improvements in 2000, then the Republicans in the House of Representatives are not going to block a bill. They're going to support it. And that's been the big blocker for legislation in the last, you know, few years. So this is why Fred Upton is the most important person -- single person on answering that question.

10:34:13

REHMAll right. And joining us now by phone from Ann Arbor, Mich., Sean McAlinden. He's chief economist at the center for automotive research. Sean, you say this problem is not really unique to GM and it's happening at the entire auto industry. What do you mean?

10:34:40

MR. SEAN MCALINDENWell, you know, currently we have 1600 different new vehicle autos on the market for at least ten major automotive firms. Each vehicle contains 4 to 6,000 unique parts. Product development cycle is shorter and shorter. The possibility -- you know, General Motors might be 12, 13,000 engineers interacting with just as many in the supplier sector that you're going to have sloppy work or some mistakes occur. And a cyclical basis is 100 percent.

10:35:14

MR. SEAN MCALINDENWe watched that at Ford. We've seen Toyota, the highest quality reputation vehicle in the world go through this cycle. Once again, General Motors -- almost every single auto manufacturer is reporting possible safety defects.

10:35:30

REHMSo you're saying that problems like this are almost unavoidable?

10:35:37

MCALINDENThey are statistically unavoidable. You know, the industry worldwide spends a hundred billion dollars a year on product development. You could raise NHTSA's budget to a billion and they couldn't really track all of the complexity of the product on the market to the extent that some of these lawyers would like them to do.

10:36:00

REHMAll right. Joan Claybrook, how would you respond?

10:36:04

CLAYBROOKWell, the whole purpose of having the defect recall system in federal law is because we recognize that there're going to be problems and defects. The question is not are there going to be problems or defects. The question is whether the company, when they find out about it, is going to do something about it and do a recall and do it quickly. The faster the company does the recall, the cheaper it is for them. And it's amazing to me that this was allowed to take so long at General Motors because it is so much cheaper if you do it right away.

10:36:35

CLAYBROOKAlso, the Department of Transportation systems are not singing and swinging. What they need to do is to have a much better transparency and openness. When I was there -- this was, you know, 40 years ago -- we got 100 -- I mean, 200,000 letters a year from people. Now with the internet and so on, NHTSA only gets 50. So they're not soliciting the public to come in, putting out consumer alerts, urging people to let them know what's going on.

10:37:02

CLAYBROOKWe also had a program where car repairs places would send us defective parts and say, I think this is a problem. That's been eliminated. So -- and for cost reasons. So there are lots of ways to find these things out. And also it's a culture issue at these auto companies. And I think that Mary Barra is acknowledging that, that you need to tell people, if you've got a problem that's a safety-related one, then you let us know. And those are the kinds of things that need to be done.

10:37:28

REHMAnd in this hour we're talking about GM Executive Mary Barra who is testifying before the Senate today. Also the head of the National Highway Transportation Safety Administration, all looking at the defects that GM created in its cars going back to the year 2001. And joining me here in the studio is Allan Kam. He's director of Highway Traffic Safety Associates. On the line with us, Joe White. He's global auto editor at the Wall Street Journal. Joan Claybrook, president emeritus of Public Citizen. And from Ann Arbor, Mich., Sean McAlinden, chief economist at Center for Automotive Research.

10:41:03

REHMAllan Kam, I know you wanted to comment on Sean's statement that because there are so many automobiles being manufactured, you're inevitably going to have these kinds of defects. Joan Claybrook says, okay, you are but they ought to be caught and reported.

10:41:27

KAMYes. The vehicle is a complex product and defects inevitably seem to arise. But when the manufacturer discovers them, you expect the manufacturer to immediately recall for safety-related defects. And that's what General Motors did not do here. To my mind they broke a sacred trust with their owners to fix safety-related defects promptly. This recall should have taken place no later than the 2004, 2005 timeframe.

10:41:55

KAMWe're reminded of Charlie Wilson, the secretary of defense in the Eisenhower Administration said, what's good for General Motors is good for the country. Well, it's not the case here. General Motors may have thought it was good and at the time not do conduct a recall, but that was not good for citizens of the United States.

10:42:10

REHMNow, I want to ask you, Joan Claybrook, I've had the same question in my mind that Linda in Commerce, Mich. has had. She says, "The very day that GM announced Mary Barra as the first woman CEO, I said out loud, something very big and bad is going to go down at GM. They're throwing a woman under the bus in a guise of breaking a glass ceiling." What do you think about that?

10:42:48

CLAYBROOKWell, I'm starting to laugh a little bit. I don't think that the men did that, but I will tell you this. Now that it's happened, she has more power as the head of General Motors than almost any of her predecessors because the company is in deep trouble. The dealers depend on her. The board of directors depends on her. The employees depend on her. The economy almost depends on her to bring this company back. That means that she has the capacity and the authority and the power to make lots of changes at General Motors. And that is what she needs to do.

10:43:18

CLAYBROOKNot just things around the edges like having an internal investigation that's unvarnished and having hired, you know, someone outside to look at their liability issues. I think that she has tremendous authority to do really important things. I hope, among other things, that in addition to reorganizing the company so it's less bureaucratic and has, you know, less committees that are just take endless days and weeks and months to make decisions, sometimes years, that she will not oppose new legislation that has inevitably got to come forward as a result of this.

10:43:52

REHMAll right.

10:43:53

CLAYBROOKI hope that she will make a public statement about that.

10:43:55

REHMAll right. Before we open the phones, Joe White, can you explain the limited liability GM faces for accidents and deaths that occurred before the GM bailout?

10:44:10

WHITEYeah, I'll try to simply. As part of the bankruptcy restructuring, liability claims, somebody got hurt, somebody got killed for accidents that happened before the bankruptcy in 2009, are sent to, you know, what is called Motors Holding Company or commonly known as the old GM. And there's not very much money at the old GM. And this is all part of the effort to restructure the company so that the new company, the one that Mary Barra runs, could start a new life largely free of the legacy costs of the past.

10:44:47

MCALINDENOn the other hand, the new GM does have responsibility for recalls and warranties. So therein lies I think, you know, some of the ambiguity as to who's going to pay for what.

10:44:58

REHMAnd what about the charge of bankruptcy fraud, Allan?

10:45:04

KAMI think it will be very complicated to reopen that bankruptcy proceeding, but this is sort of an extreme case here. It's really sort of outrageous when you think about it. GM should've conducted a recall around 2004. People get killed and seriously injured in 2005, 2006, 2007, 2008. GM goes through the bankruptcy in 2009 and says, we have no responsibility for it. They're being rewarded for their delay. It kind of reminds me of the individual who kills his parents or murders his parents and then pleads for mercy on the grounds that he's an orphan.

10:45:36

REHMWhat about that, Sean McAlinden?

10:45:39

MCALINDENWell, for Pete's sakes, that's really taking this conspiracy stuff a little bit too far. You know, actually Chrysler got even more protection than General Motors. GM actually can be sued, you know, for these older cars for accidents after the bankruptcy because the Trial Lawyers Association lobbied the White House that they couldn't afford to lose the business, is our understanding.

10:46:03

MCALINDENBefore the bankruptcy GM was averaging litigation costs of $900 million a year, the cost of their own lawyers and settlements. And, you know, it's an enormous cost on our industry. There's a giant litigation industry funded by 40 percent contingency fees and class action suits on the other side. You know, you've got to wonder why would our companies -- you know, what is the real -- you know, the real loss of reputation is the big cost here. There's no real motivation, you know, in the tiny cost of parts side to hide these things, you know.

10:46:40

MCALINDENThis is really getting, I think, out of control. In fact, even -- what percentage of automotive fatalities are even related to defects compared to, let's say, driver behavior? And where have the real gains come in auto safety, if not -- actually new safety components and redesigns not preventing defects? I mean, which the analysis...

10:47:00

REHMAll right. Joan, do you want to comment?

10:47:05

CLAYBROOKWell, first of all, we have a liability system in this country that does allow people who are killed or injured by the fault of someone else to sue. And that's, in many ways, very sacred in this country. It's affected by the 7th Amendment. So I think that there's a real issue here of whether or not there was any fraud by General Motors in knowing that they had this potential defect and maybe some others. And that they would be protected under the bailout.

10:47:33

CLAYBROOKI don't agree that there should've been this protection of the bailout but I certainly think that people who were injured where there was a cover-up of the defect should have some kind of compensation. And apparently Mary Barra believes that too. We wrote a -- the consumer groups wrote a letter to her asking her to set up a $1 billion fund to take care of these kinds of cases. And so her result -- the result of that is she's gone to Ken Feinberg. And I think that's a really good first step. And we'll see what happens with that.

10:48:02

REHMAll right.

10:48:03

CLAYBROOKSo I'm very happy about that part.

10:48:05

REHMOkay. let's open the phones. We'll go to Drew in Cape May, N.J. You're on the air. Drew, are you there?

10:48:15

DREWYes, hello.

10:48:16

REHMGo right ahead, sir.

10:48:17

DREWYes, thanks for taking my call. So, you know, Joan had mentioned that there should be more criminal liability. And, you know, if a kids goes into a convenience store and someone dies from a heart attack, he can get charged with murder because someone died during the act of a crime. Why can't we hold the people that are responsible for like not reporting these things criminally liable? And send them to, like, real jail rather than just taking 10 percent of their gross profits as compensation?

10:48:44

REHMAll right. Joe White, is there perhaps a likelihood of somebody going to jail for this?

10:48:54

WHITEWell, I don't know if there's a likelihood of someone going to jail for this. However, I will point out that the government -- the Justice Department just a couple of weeks ago fined Toyota 1.2 billion in using a criminal fraud -- to settle a criminal fraud complaint because Toyota hid evidence of defects related to sudden acceleration.

10:49:17

WHITESo, you know, the government -- at least the current administration has shown a willingness to go after companies using the criminal statutes. But they did -- you know, obviously they did stop short of trying to put someone who works for Toyota in jail. So, again, I think you're going to have a lot of discussion about this. I mean, how do you give regulators a big enough and a scary enough stick and should you?

10:49:42

REHMJoan.

10:49:43

CLAYBROOKWell, in the Toyota case there was a lot of confusion about exactly what the defect was. And it was something that involved both the dealers and the company. But I think in this case, in General Motors' case that it's very clear that Delphi said, you have a part that doesn't comply with your specs. And General Motors said, go ahead and use it. And then there were recommendations by some people internally in General Motors to do a recall and they said, no, it doesn't make good business sense

10:50:10

CLAYBROOKSo it's much clearer who has this kind of liability. Now NHTSA does not have the criminal statute authority to put someone in jail or even fine them if they fail and refuse under -- knowingly and willfully, criminally to recall a car or one that doesn't comply with the safety standards. But you can use the Justice Department Authority in 18 USC that is what they used for the Toyota case. They could have put someone in jail criminally for fraud. They didn't.

10:50:42

CLAYBROOKI don't know whether they will at General Motors or not. It depends on what the report comes out and says. But I think that until somebody goes to jail for killing people knowingly and willfully by not recalling a defective car, that we will never have the auto companies treat this statute seriously.

10:50:56

REHMAll right. To Jerry in O'Fallon, Mo. Hi, you're on the air.

10:51:03

JERRYI tried to make this point but Mr. Sesno cut me off when Bob Lutz was on your show on the same topic. The standard -- ever since the Corvair was our first modern-like safety regimen automobile, the standard defense by companies is to simply obfuscate. GM spent their resources trying to destroy Mr. Nader's credibility instead of fixing the problem. And that seems to have continued until today.

10:51:30

JERRYAnd I think this is a direct result of all those who really do not want government regulations. And our congress can't legislate the -- you know, they can't put the National Highway Transportation office out of business, but they sure can cut its funding. So this is a, you know, direct result of that. And finally I will say to your one guest, Sean, I came from the airline industry, which is much more complicated than building cars. There's a multibillion dollar regulator agency that keeps it safe. So it's not impossible. Yes, defects happen but, as you said, well, you know, why would they obfuscate over something that costs pennies? That's exactly what they did.

10:52:14

REHMAll right. Sean.

10:52:16

MCALINDENWell, the early industry, as a useful, you know, judgment called pilot error, which obviously it's what the airline offered. It suddenly lets the aircraft manufacturer off a bet, you might say. And we're not allowed to use, you know, in these kinds of arguments other mitigating factors like driver error, you know. It's actually a contributing cause to many of these unfortunate accidents (unintelligible) ...

10:52:41

REHMBut driver error was surely not involved here, Mr. McAlinden.

10:52:47

MCALINDENWell, the driver error at 100 miles an hour with a alcohol content twice the level -- legal level without a seatbelt in a small (unintelligible) ...

10:52:55

REHMI think that was in the case of one teenage driver, isn't that correct, Joe?

10:53:00

MCALINDENMore than one.

10:53:02

CLAYBROOKBut it wasn't 100...

10:53:03

WHITE...more than one. I mean, look, there's -- one of the tragedies here, and there are many, is that a number of the victims of these accidents were young, inexperienced drivers. Not all of them had been drinking, but some of them had. And...

10:53:16

MCALINDENNo. Some, not all.

10:53:17

WHITE...yeah, some not all. And many of the people injured and killed in these accidents were not wearing seatbelts. And this is one of the reasons why, at least according to NHTSA, that they were unable to see through the fog and get to the real problem earlier than they did. So there was a lot of fog here. And driver behavior was one of the factors.

10:53:39

REHMAnd you're listening to "The Diane Rehm Show." Let's go finally to Mary in Gulf Shores, Ala. You're on the air. Mary, are you there?

10:53:52

MARYI am here, yes.

10:53:53

REHMGo right ahead, please.

10:53:54

MARYYes. I would like to point to a systemic issue. This is not just GM, although their behavior is horrific. All of these companies issue what's called technical service bulletins. These are issued to the dealers to give them a heads-up on defects. And I have a Ford Mercury Marquis I bought in 2008 unknowing about any defect whatsoever. No recalls were on the Car Facts. And I had an intake manifold fail suddenly, three cracks. This intake manifold was known to be defective back in 1999. It affected cars from '95 to 2001 and then they changed the manifold.

10:54:36

MARYThey knew it. They issued a technical service bulletin -- many technical service bulletins on this issue to dealers, proactively removed them from fleets before they failed. So that's showing that they knew that these were wrong. These were bad. And yet it took a lawsuit for individuals to get reimbursed. There never was a recall. And when I reported this to NHTSA when mine failed suddenly -- and it overheated and I was luckily right near a service station -- if this had happened to me with two grandchildren in the car at 70 miles an hour, I could've had -- I could've been dead too. And...

10:55:15

REHMIndeed. And that may indicate that somebody has got to take responsibility for this in a big way, Allan.

10:55:29

KAMYes. A technical service bulletin is not an adequate substitute for a recall. In the GM case to 400 and some owners who took advantage of a technical service bulletin when the dealer called it to their attention and made some adjustment to the size of the hole and a key. But hundreds of thousands of owners didn't know about it. If there's a safety-related defect the manufacturer is supposed to conduct a recall, send letters to all of the registered owners. And a technical service bulletin to the dealers is insufficient.

10:56:00

REHMJoan Claybrook, what's going to be the outcome here?

10:56:05

CLAYBROOKWell, I hope that there's going to be new legislation. As I said, Fred Upton is the crucial character that's going to determine whether there is or isn't going to be successful legislation. After the Ford Explorer case it went through in two months in the congress. And I hope that this will go through quite immediately because there are important changes and improvements that need to be made. And if they are made, I think there'll be a new day. And I'm very hopeful that that will happen and that Mary Barra's lobbyists will not oppose it.

10:56:33

REHMAll right. And I want to thank all of you for joining me. Joan Claybrook, Joe White, Allan Kam and Sean McAlinden. We'll see what the hearings reveal today. Thanks for listening all. I'm Diane Rehm.

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